LayerZero recently introduced a bridge token that allows users to move Lido’s $5.5 billion wrapped staked ether (wstETH) token between Ethereum, Avalanche, BNB, and Scroll.
There was one small problem, however: LayerZero apparently didn’t wait for permission from Lido DAO before deploying.
LayerZero’s announcement of its omnichain fungible token (OFT) before a DAO vote led some Lido DAO members to feel that the DAO is being strong-armed to gain approval. Although Lido DAO’s power has been a topic of concern lately, one member says the DAO has limited influence to prevent situations like this.
LayerZero announced its wstETH standard on Wednesday, and Binance’s BNB chain followed with an announcement of its own.
Hart Lambur, a Lido seed investor, said the combined marketing push gave a false sense of Lido’s approval.
“It looks like this is the official Lido bridge going to those chains,” Lambur said, “but it’s not sanctioned or approved by Lido at all. It’s not checked. The safety risks have not yet been debated.”
Lambur added that Lido DAO has no recourse other than a possible lawsuit to stop LayerZero from deploying its OFT as Lido-approved.
Around the same time the announcement posts appeared, LayerZero made a proposal on the Lido DAO forum stating that it had created the wstETH bridge and would like to see the product formally endorsed by Lido DAO. DAO members immediately expressed their skepticism.
“By unilaterally deploying a bridge and marketing it in an official-looking way, it feels like you’re trying to pressure the DAO into accepting your proposal,” said Hasu, the strategy lead at Flashbots.
LayerZero did not immediately respond to a request for comment.
Several forum posters advocated waiting a week before putting the proposal to a vote, while others expressed concerns about the safety of the OFT.
Lambur said that while a worst-case scenario is unlikely, the real danger lies in LayerZero and BNB Chain advertising an unaudited OFT standard, as the two companies’ marketing could attract significant investment.
“Let’s say… we have a billion dollars in this standard, and then there’s an exploit and then there’s unlimited production of this thing that people are selling, [causing] pandemonium and panic. Everyone is selling sETH and trying to withdraw their ETH from Lido,” said Lambur. “That disaster scenario, I’m not saying it’s likely, but it’s not impossible.”
According to Blockworks Research, wstETH is the 13th largest crypto token by market capitalization.
About $34.5 million worth of wstETH changed hands in the 24 hours after LayerZero’s announcement, a negligible change from the day before.